Debt can squeeze the joy out of being an entrepreneur.
Do you spend sleepless nights worrying about your business debt? If your business is not doing what it should be and is spiralling out of control with debt, high operating expenses and poor sales, it is time to adopt the principle of ‘lean’ and do things differently. Why not start a new business with the one you have, before it’s too late?
Firstly, get rid of everything you don’t need; large offices, expensive cars, poor performing or excessive staff. Just get brutal on the overheads and operating expenses.
Secondly, scrutinise every element of your business: the business model, business plan, sales and financial forecasts, marketing strategy and more. It’s now all about creating a brighter, less stressful view of the road ahead.
Handling debt can be one of the most difficult challenges a small business owner can face. Even worse, your credit scores, not to mention your business reputation, will take a severe hit, making it nearly impossible to regain business stability. With a plan in place and a commitment to eliminating the debt, your business can soon be debt free.
Here are a few helpful tips to controlling your debt before it controls you.
Be honest with yourself
If the demand for your product or service isn’t there anymore, you have to take action and change direction. You cannot keep doing what you are doing and expect different results. But if you really think your business would thrive if only your debt payments were lower, then you are on the right track. Understand the problem as you want to make sure you never find yourself in this situation again. With a firm grasp of the nature of the problem and steps taken to make sure the problem won’t reoccur, you’re ready for your plan of attack.
Eliminate every expense you can live without
Reduce your monthly expenses to the lowest possible number. You have to be tough here as you can’t build a new profit base when you are still using yesterday’s expense model. Only purchase what you really need. Perhaps you can sublease unused space or sell off unused equipment. While shrinking your workforce is not an attractive option, it may be necessary to keep your business alive. As Warren Buffet put it, “If you buy the things you don’t need, you will soon be selling the things that you do need.”
Reach out to creditors
Many creditors are willing to work with you in a manner that will help them get their money without having to resort to legal measures. They are mainly interested in getting their money back and will hopefully be reasonable. Prioritise the debt payoff process. For loans, credit cards and other types of debt, arrange the debts according to the interest rate the business is paying on the debt. Plan on making additional payments and paying off the credit cards, loans and debts with the highest interest rate first.
Consolidate the debt
Consolidate your business loans into one payment, which may reduce monthly costs without negatively affecting your credit. Deal with a single creditor, rather than many and perhaps get a loan with a lower interest rate.
Be the rainmaker in your business
Sales is everything. If you have an abundance of sales, cash will flow, and if cash flows you can fix anything in your business. To improve cash flow problems, you must constantly network, build relationships and make it rain. As the rainmaker in your business, you will seek out, secure and retain big clients, bring in big money, and conclude big deals. Don’t outsource this task, seize it and grow your top line quickly.
Treat your best customers like gold
Look at which customers are giving you the most profit. Treat them like gold. Whatever you do, just don’t lose them! Keep in touch with your clients. Instil the ‘customer is king culture’ into your business and keep your team focused on customer service. Extraordinary behaviour with your best customers will give you extraordinary top line growth. Offer them such a high level of service that they become natural ambassadors for the business. The investment pays off as you will expand your customer base with first-rate customers.
Get paid faster
Getting customers to pay on time is one of the biggest challenges for business owners, and if the problem persists too long it can ultimately shut down your business. When money is tight, paying basic bills can get challenging. But when cash is plentiful, a business can invest in its future by expanding, buying new equipment, hiring key staff or retaining key staff by rewarding them further.
Make your payment terms crystal clear, invoice smaller amounts than that big invoice, make a personal connection with the person that pays the invoices and get them to pay you first, check that every invoice is accurate and use the telephone to chase money. Offer your best customers better deals if they can pay you quicker.
Proudly brought to you by the National Small Business Chamber (NSBC).